Man Group’s GLG Sued Over ‘Incomprehensible’ Deal

Founder of the Northern & Shell Plc media group Richard Desmond invested about 50 million pounds in a product referred to as Constant Proportion Portfolio Insurance, a type of swap, according to his GLG claim. Photographer: Peter Macdiarmid/Getty Images

Jan. 6 (Bloomberg) -- Richard Desmond, founder of the
Northern & Shell Plc media group, sued a Man Group Plc hedge-fund unit for as much as 20 million pounds ($33 million), adding
it to a dispute over losses on an investment he said was too
complex to understand.

Desmond, whose media empire includes OK! Magazine, the
Daily Express newspaper and adult television channels, said GLG
Partners LP advised him to enter into a 2007 derivatives
transaction with Credit Suisse Group AG as a counterparty,
according to the lawsuit filed in London. He invested about 50
million pounds in a product referred to as Constant Proportion
Portfolio Insurance, a type of swap.

“It was incomprehensible except to an expert,” Desmond’s
lawyers said in court documents made available last week. The
62-year-old said GLG failed to warn him about the risks. He sued
Credit Suisse over the deal last year.

Investment firms selling complicated derivatives have faced
lawsuits around the world from customers baffled by losses that
followed the collapse of Lehman Brothers Holdings Inc. in 2008.
In the U.K., thousands of small businesses have sued lenders
over interest-rate swaps that turned out to be costly. Last
month investors filed a class action against Royal Bank of
Scotland Group Plc and Standard & Poor’s for a synthetic debt-linked product that fell as much as 90 percent.

Desmond was a sophisticated investor who benefited from
professional advice, GLG said in defense papers filed last
month. The hedge fund wasn’t a party to the transaction and
didn’t advise Desmond, who independently decided to invest, the
firm said.

‘Unpredictable, Unmanageable’

Chris Ryall, a spokesman for London-based Man Group at its
external public-relations firm, RLM Finsbury, and Desmond’s
spokesman, Sam Bowen, declined to comment.

When Desmond asked for the investment to be unwound during
the market turmoil of 2008, he lost about 20 million pounds, he
said in the lawsuit. He said GLG didn’t inform him of the risk
there would be “unpredicted, unpredictable or unmanageable
losses.”

Desmond put about a quarter of his 200 million-pound
fortune into the transaction, according to his court filing in
the Credit Suisse case. He said he was given a misleading
impression of potential returns and told the only risk was that
the counterparty went bankrupt.

In October, a judge combined the claims against Zurich-based Credit Suisse and GLG into a single trial scheduled to
start in January 2015.